IT industry analysis—2009 Week 35—on one page

Catch up on the past week's analysis

OUTSOURCING

• IBM has been awarded a major applications outsourcing contract by BP, including the management of all BP's SAP applications. The year-long procurement process emerged from BP's decision to rationalize the number of providers it uses for ADM services from over 40. Accenture will be responsible for SAP application development. TCS, Infosys and Wipro also won contracts with BP. The major loser was (Mahindra) Satyam. BP emphasized that it would not be outsourcing any work that was previously done in-house. By rationalizing its applications services supplier base, the company is looking for standardized processes, deeper relationships with its services providers, and cost savings over the five-year period. Most large organisation are expected to follow BP's example, when rationalizing applications services suppliers, of choosing Tier-1 vendors with a large offshore capability. [1] [2]
  
• Accenture has, for the first time, identified Business Process Outsourcing as a key growth platform. From this month onward, its three growth platforms will be: BPO, management consulting and technology (which comprises systems integration, technology consulting, and IT outsourcing). This confirms the increasing strategic importance of the market, although BPO has proved much more difficult to deliver than IT outsourcing.
  
• Fujitsu will eliminate 1,200 UK jobs, equal to 10% of its British workforce, because of a fall in revenue. The troubled company has been hit badly by the recession and has initiated a company-wide pay freeze, reduced the number of temporary staff and put tight controls on expenditure. Furthermore the Unite union said 87% of its members had voted in favour of strike action over the company's proposal to close its final-salary pension scheme.
  
  • In May 2008 Fujitsu's £0.9bn contract with the National Programme for IT was terminated following failed contract renegotiations. Revenue is expected to fall 7% this year. In the middle of this year it lost to CSC in the number one goal of its central government division, namely the UK's National Identity Scheme.
    
  • Fujitsu has also been distracted by the integration of Fujitsu Siemens and the loss of CEO David Courtley.
    
  • In its global product-led approach, Fujitsu UK does not have strong industry-specific services offerings, nor has it developed a strong value proposition to help clients survive the recession.
    
  • It has not won significant local government sector outsourcing business, and now lacks any clear local government strategy beyond IT shared services.
    
  • Fujitsu UK's IT services business remains infrastructure-dominated, particularly around the desktop, an area which is extremely price sensitive and which has been hit hard in the recession.
    
  • It has lagged in the development of offshore capabilities, believing that it was protected by its public sector business.
    
  • Fujitsu's reputation for quality of delivery has slipped with some customers. [3] [4]
    
  
  

EMPLOYMENT

• In June, Mahindra Satyam—the new name for Tech Mahindra's acquisition of troubled outsourcer Satyam—sent 8,000 employees away on a six-month sabbatical on half-pay. Now, as a sign of a pick-up in business, Mahindra Satyam has recalled 1,000 of these employees. At the end of the sabbatical, it expects there to be about 5,500 employees who haven't been recalled who will then be classed as being "given indefinite leave without pay". [5]
  
• Gartner sees an increasing need in the IT industry for people with skills in the social sciences. Some employees will have 'artistic talents in visual and social schemes that induce the desired behaviours and reactions from consumers'. The usability of applications delivered over the Web will also become a focus. Web psychologists will become increasingly necessary as designers try to study and exploit human behaviour on the web. And information anthropologists will trace the origin, history and evolution of web content in order to check whether it infringes on an organisation's intellectual property rights. [6]
  
• Over 29,000 IT workers from outside the EU were brought into the UK last year by their multinational employers—more than double the number (14,000) of workers from all other professions combined, such as finance and legal. "There is evidence that the intra-company transfer system is being exploited in the IT sector," said the CEO of the Association of Professional Staffing Companies. [7]
  
• UK businesses could save £32bn a year in transport costs if its workforce were encouraged to work from home, according to research commissioned by Orange. 16% of respondents would be willing to take an average of a £6,900 cut in salary cut, and 42%would forfeit their company car if they could work at their ideal location. 27% would forfeit the seniority of their role and 25% their future job progression to make their ideal work-life balance scenario a reality. Futurologist James Bellini said the economy would benefit from people being able to work from wherever they choose: "This will generate substantial economic returns as e-workers of the future will be more productive, better motivated and happier. In turn, the businesses they work for will be more adaptable, more responsive to changing market conditions and more profitable." [8]
  

663 subscribers BACK ISSUES:
35	Jobs + H/W
34	Productivity
33	Offshore & Soft
32	Slowdown+Cloud
31	2Q Results
30	PCs + Services
29	CapEx→OpEx
28	Net & Services
27	Realigning
26	Decline
25	Consolidation
24	Transactions
23	Cost-cutting
compiled by:	Gavin Wilson

IT SPENDING

• The Institute of Chartered Accountants (ICAEW) reports that confidence among UK business professionals has become positive for the first time since 3Q07. The ICAEW UK Business Confidence Monitor revealed a record rise in confidence from -28 to +5, with the IT sector being the most confident. Based on this, the Institute forecasts a rise in GDP of 0.5% in the current quarter, ending five quarters of decline. [9]
  
• Spending on computer hardware by UK businesses has fallen to the lowest level since 2001, when the government began keeping records of private sector IT investment. In 2Q09, UK firms spent just £1.1bn on hardware purchases, down 30% from the previous three months, when £1.54bn was invested. Twelve months ago, the quarterly figure was £1.46bn. The figures reveal the extent to which companies are avoiding costly capital expenditure purchases during the recession. [10]
  

FINANCIAL RESULTS

• Computacenter reported a 2% fall in total revenue during 1H09 to £1.2bn while its pre-tax profits grew by 62%, due to cost-cutting. Services revenues grew 8% to £0.49bn. [11] [12] [13] [14]
  
• Dell's revenues fell 22% to $12.8bn in the quarter ended 31st July. Enterprise sales were down 32% to $3.3bn, SME revenues were down 29% to $2.8bn, consumer revenues were down 9% and public sector revenues down 16% to $3.8bn. Server sales were reported to be up 9%. Dell said it expected near-term profit pressures from aggressive price competition and rising component costs. [15][16] [17]
  
• A regulatory filing has revealed that Sun's revenues fell 31% to $2.6bn in the quarter ended 30th June. It also posted a net loss of $0.15bn. There was no conference call, and no press release. Just some tabulated numbers. The June quarter is traditionally Sun's best, given that it is the company's year-end, but Sun's hardware and software sales continued to collapse. Sun's employees, shareholders, and customers will suffer until Oracle gets regulatory approval for the deal from Europe, wrote The Register. [18] [19]
  
• Oracle is likely to sell Sun's hardware business to HP. Oracle CEO Larry Ellison has made no secret of the fact that he wanted Sun for its software, but he has always denied planning to sell off Sun's hardware business. But now CNN has revealed that talks between Oracle and HP are going ahead. HP would wants Sun's hardware to boost its services business. (HP bought outsourcing player EDS, which was Sun's best customer. By owning Sun technology, HP would improve its profit margins on many EDS deals.) By making the world believe he is not interested in selling Sun's hardware business, Ellison hopes HP will think it needs to offer more money to complete the purchase. [20]
  

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